MARKETS
US TSYS: Tsys Futures Off Session Lows, China To Speak With Trump
- Trading has been largely focused around the Trump Tariff headlines today. Earlier it was reported that China is planning to open discussions with Trump to avoid further tariff escalation. Tsys futures are off session lows now with just the TU contract trading lower on the day, last -00⅛ at 102-25⅞, while TY is +9 at 109-04.
- A bullish corrective cycle remains intact and the TY contract is holding on to its recent gains. 109-11, the 50-day EMA, remains exposed. It has been pierced, a clear break of it would strengthen a bullish theme and open 109-31, the Dec 18 high. The medium-term trend condition is bearish. The bear trigger is 107-06, the Jan 13 low. Initial firm support has been defined at 108-06, the Jan 23 low.
- In cash tsys, the curve has twist-flattened. We trade well off session's worst levels after the 2yr rose 7bps earlier, it now trades +4.1bps at 4.239%, while the 10yr is -3bps at 4.508%, just above the ytd lows of 4.486%.
- The 2s10s curve has dropped 7bps to 27bps having now erased all the steepening made this year, while the 2s30s is -8.5bps at 50bps.
- Projected rate cuts through mid-2025 receded vs.Friday (*) levels as follows: Mar'25 at -3.9bp (-4.2bp), May'25 at -11.8bp (-12.3bp), Jun'25 at -22.6bp (-24.0), Jul'25 at -28.5bp (-29.5bp).
- Later today, we have S&P Global US Manufacturing PMI, ISM Manufacturing while later in the week focus will turn to corporate earnings, key CPI, PPI inflation measures and headline employment data for January.
JGBS: Cash Bonds Slightly Mixed, US Tsys Twist-Flatten, 10Y Supply Tomorrow
JGB futures are stronger, +18 compared to settlement levels, but off session bests.
- (MNI) Many BoJ board members were concerned over the upside risks to prices and saw the need to raise the policy interest rate gradually at the Jan 23-24 meeting but they failed to offer insight into the pace or timeline, the summary of opinions showed.
- A different member said, with economic activity and prices remaining on track, "risks to prices have become more skewed to the upside."
- The board hiked the policy rate 25bps to 0.5% at the January meeting, the first increase since July 2024 and its highest level since 2008.
- In today’s Asia-Pacific session, cash US tsys have twist-flattened, with yields ranging from 4bps higher to 4bps lower. In addition to tariff developments, this week’s focus in the US will be on a heavy slate of corporate earnings, key CPI and PPI inflation data, and January’s headline employment report.
- Cash JGBs are mixed across benchmarks, with yields 1bp lower to 1bp higher. The benchmark 10-year yield is 0.6bp lower at 1.239% versus the cycle high of 1.262%.
- Swap rates are 1-2bps lower. Swap spreads are slightly mixed.
- Tomorrow, the local calendar will see Monetary Base data alongside 10-year supply.
AUSSIE BONDS: Tracking US Tsys As Market Adjusts To Weekend’s Tariff News
ACGBs (YM +6.0 & XM +5.5) are richer and near session highs.
- Outside of the previously outlined retail sales, building approvals and job ads there hasn't been much by way of domestic drivers to flag.
- The strengthening observed during the session appears more closely linked to movements in US tsys following the weekend’s US tariff announcements and the subsequent retaliatory measures by Canada and Mexico. China has also indicated it will implement countermeasures and file a complaint with the World Trade Organization.
- In today’s Asia-Pacific session, cash US tsys have twist-flattened, with yields ranging from 4bps higher to 5bps lower. In addition to tariff developments, this week’s focus in the US will be on a heavy slate of corporate earnings, key CPI and PPI inflation data, and January’s headline employment report.
- Cash ACGBs are 5-6bps richer with the AU-US 10-year yield differential at -13bps.
- Swap rates are 5bps lower.
- The bills strip is richer, with pricing +2 to +6.
- Tomorrow, the local calendar will see Household Spending and S&P Global Composite & Services PMIs.
- A new 21 March 2036 Treasury Bond is planned to be issued via syndication this week (subject to market conditions). The Joint Lead Managers are: Barrenjoey Markets; Commonwealth Bank of Australia; National Australia Bank Limited; and UBS.
BONDS: NZGBS: Closed On A Strong Note, Long-Dated US Tsys Rally On Tariff News
- After opening the session slightly weaker after the weekend’s US tariff developments, the local market changed course after US tsys reversed early Asia-Pac session weakness.
- Cash US tsys have twist-flattened, with yields ranging from 4bps higher to 5bps lower. In addition to tariff developments, this week’s focus will be on a heavy slate of corporate earnings, key CPI and PPI inflation data, and January’s headline employment report.
- Swap rates closed 6-8bps lower, with the 2s10s curve steeper.
- RBNZ-dated OIS pricing is flat to 5bps softer across meetings today, and down 4-17bps compared to pre-Q4 CPI levels on 22 January. 49bps of easing is priced for February, with a cumulative 127bps by November 2025.
- Tomorrow, the local calendar will see Building Permits data, ahead of the Q4 Employment Report on Wednesday.
- On Thursday, the NZ Treasury plans to sell NZ$225mn of the 4.50% Apr-27 bond, NZ$225mn of the 2.00% May-32 bond and NZ$50mn of the 2.75% May-51 bond.
FOREX: Fresh Highs For USD Index On Tariffs, Yen Outperforms Amid Equity Slump
The USD BBDXY index sits just off fresh cycle highs, last near 1323.5, earlier we got just above 1325.1, levels last seen back in 2022. We are still up around 1.20% versus end Friday levels, as the markets digest weekend news around Trump signing orders for 25% tariffs against Mexico and Canada (energy at 10%) and 10% for China. These will come into affect this Tuesday.
- It has mostly been one-way USD traffic to the upside, although some pairs are away from early extremes and we some tariff headlines have created volatility.
- USD/CAD sits at 1.4760/65 in latest dealings, earlier highs were 1.4793. These are levels last seen in 2003. USD/MXN sit up nearly 2.8%, last near 21.2700. This is fresh highs in this pair back to 2022.
- USD/CAD had a brief pull back as Trump stated he would talk to both Canadian and Mexican leaders Monday morning US time, which raised hopes of potential to negotiate. The USD has been supported on dips though.
- Trump also stated at this time tariffs would be placed on the EU, although didn't give any hints around timing. EUR/USD was last 1.0220/25, off 1.3%. Earlier lows (amidst poor liquidity) were at 1.0141.
- AUD and NZD were both off 2% at one stage. AUD/USD getting to fresh lows since 2020 of 0.6088, but we sit slightly higher in latest dealings (0.6105/10). NZD/USD got to 0.5516, but is now in the 0.5530/35 region, still down 1.8%.
- Both currencies saw modest short covering on lower USD/CNH levels. The WSJ reported that China is likely to seek negotiations with the US to lower trade tensions and will pledge not to devalue the yuan.
- USD/JPY was sub 155.00 in early trade, but is now back at 155.70, around 0.30% weaker in yen terms. US equity futures are down sharply post the tariff news. Eminis and Nasdaq futures are off more than 2%. US yields are higher at the front of the curve though, providing some yield support to USD/JPY. AUD/JPY fell through 95.00, fresh lows back to Sep last year, but is now back abvoe this figure level.
- Later the Fed’s Bostic and Musalem speak and US January manufacturing PMI/ISM and December construction print. ECB’s Donnery appears and European January manufacturing PMIs and January CPI are released.
ASIA STOCKS: Asian Equities Hit Hard On Tariff Headlines
Asian equities lower across the board today following Tariff headlines. Although it has been reported that China is planning to open discussions with Trump to avoid further escalation.
- Japan's Nikkei 225 and Topix declined 2.8% and 2.5%, respectively, as US tariffs heightened global growth concerns. Tech stocks were particularly weak, with Tokyo Electron, Nintendo, and KDDI among those under pressure ahead of earnings. However, Hitachi (+1.1%) bucked the trend after reporting stronger-than-expected Q3 results and raising its full-year profit forecast. Komatsu dropped 7.2%, the most since August, after mixed Q3 earnings signaled uncertain global demand.
- South Korea's Kospi Index fell 3%, as semiconductor stocks were hit hard. Samsung Electronics and SK Hynix both declined as AI-related stocks faced profit-taking. Investors are also concerned that US tariffs will hurt Korea’s export-driven economy, particularly in technology and automotive sectors.
- Taiwan's Taiex Index is 3.8% lower, with TSMC leading declines as the AI sector saw a broad selloff. Delta Electronics’ parent company fell 9.8% in Taiwan, its largest drop since August 5, amid worries about its exposure to Mexico, where it has significant manufacturing operations. AI hardware names also suffered, with Wiwynn, Quanta, and Asia Vital hitting limit down on concerns that US tariffs could disrupt supply chains. PC makers like Asus (+5.4%) and Acer (+2.6%) outperformed, as they are expected to benefit from increased AI adoption.
- In Hong Kong the Hang Seng Index fell is 0.7%, paring deeper losses after reports that China is planning to open discussions with Trump to avoid further tariff escalation. Offshore yuan stabilized, signaling potential intervention. Alibaba surged 5%, its highest since Nov. 12, after revealing an AI model that outperformed Meta’s Llama and DeepSeek V3. Macau casino stocks declined after January gaming revenue missed estimates, but analysts remain focused on Lunar New Year performance, which could still show strength. CK Hutchison (-2.6%) hit its lowest since July 11, with further pressure on shipping and infrastructure stocks tied to the Panama Canal, after the US Secretary of State urged Panama to remove Chinese companies near key trade routes. Mainland markets remain closed for the Lunar New Year and will reopen on Wednesday.
- Australia's ASX 200 fell 1.9%, with mining stocks underperforming amid concerns that US tariffs on Canada, Mexico, and China could dampen global economic growth and weaken commodity demand. Westgold Resources plunged 14% after cutting its gold production forecast. In New Zealand, the NZX 50 dropped 1.4%, led by Fisher & Paykel Healthcare, which saw its biggest one-day decline since 2020 after warning of potential cost increases due to tariffs.
OIL: Crude Off Intraday Highs But Still Up On US Tariff News
Oil prices are higher during APAC trading today after news on the weekend that the US would go ahead with 25% tariffs on imports from Canada & Mexico and 10% from China. The inflationary impact had boosted oil prices with WTI up 1.8% to $73.81/bbl and Brent +0.8% to $76.28/bbl. They reached lows of $73.48 and $75.94 respectively. The USD index is 1.2% higher which has contributed to bringing oil off its intraday highs made early in the session.
- Canadian oil exports to the US will face a 10% tariff but that is still likely to mean higher fuel prices for American drivers as over half of US crude imports come from Canada. March gasoline futures are up 3.9% today but spiked 6.2% on the open. US President Trump is due to speak to Canada’s PM Trudeau later.
- While the prospect of increased protectionism is currently driving oil prices higher, they could easily turn down when concerns of the impact on global growth and thus demand for crude come to the fore.
- OPEC+ meets later today and is not expected to change its quotas. Rising non-OPEC supply and soft demand from China have driven it to delay its plan to normalise output.
- Trump plans to boost the US’ oil production and now there is the chance of increased supply from sanction-hit Venezuela on the global market after a US envoy met with President Maduro which resulted in an agreement to release American prisoners and for Venezuela to accept the return of illegal immigrants.
- Later the Fed’s Bostic and Musalem speak and US January manufacturing PMI/ISM and December construction print. ECB’s Donnery appears and European January manufacturing PMIs and January CPI are released.
GOLD: Gold Declines on Tariff Headlines.
- Gold started this week with a weakening bias, off from Friday’s close of US$2,798.41 to be at $2,772.75 in afternoon trading.
- Last week saw an amazing turnaround from gold to finish 1.00% better for the week after a very poor day, Monday and this week, Gold is showing it doesn’t like Mondays again down -0.90%.
- Whilst gold’s ‘safe haven’ status usually prevails, a strengthening USD on the back of tariff news won over sending gold lower this morning.
- The US announced 25% tariffs on goods from Mexico and Canada, and 10% from China coming into effect from Tuesday.
- The potential for a global trade war is now real and in any period of uncertainty the USD strengthens and already has moved by enough to offset gold’s safe haven status.
- That said, gold started 2025 where it left off last year, performing well and up over 5% year to date.
- JPMorgan announced that it plans to deliver US$4bn of gold bullion this month against contracts that expire in February, representing one of the largest physical settlements on record.
GLOBAL MACRO: Canada & Mexico More Vulnerable To Tariffs Than US
- The US is going ahead with 25% tariffs on Canada and Mexico and 10% on China. As expected there has been a response with Canada announcing C$155bn in retaliatory measures, China to introduce “corresponding countermeasures” and a lawsuit with the WTO, and Mexico to announce its response today. But with Canada’s exports to the US in 2024 accounting for over 75% of the total and Mexico over 80% compared with 17% and 16% respectively for US exports, the power lies with the US.
- China is a lot more diversified than Canada and Mexico with only 13.3% of its 2024 goods exports going to the US down from 14.8% in 2023. They were worth 2.8% of GDP in 2023. 6.9% of US exports went to China in 2024.
- In 2024, over 28% of US merchandise imports came from Canada and Mexico and thus a 25% tariff is likely to result in higher prices certainly in the short- to- medium terms.
US imports by source % total
Source: MNI - Market News/Refinitiv
- Oil is a major Canadian export to the US, ranked 1 and 2. Midwestern refineries are geared to process heavy sour Canadian crude and over half of US oil imports come from Canada. Thus with the significant risk that a 25% tariff on oil imports would push US fuel prices up, imports of Canadian oil, natural gas and electricity will be taxed at 10%.
- In 2023, Canadian exports to the US accounted for over 20% of GDP, while Mexico was less exposed with them worth 6.8%.
- Canada will impose a 25% tariff on C$30bn of US merchandise from Tuesday including cosmetics, appliances, pulp & paper, tyres and plastics. Another C$125bn will face the tax in a few weeks.
Exports to the US 2023 %
Source: MNI - Market News/Refinitiv
AUSTRALIA DATA: Retail Spending Recovering Helped By Real Income Growth
Retail sales were stronger than expected at the end of 2024. Q4 volumes rose 1.0% q/q to be +1.1% y/y after 0.5% & 0.2%. Monthly sales values have been impacted by a change in the timing of seasonal spending. Thus December fell 0.1% m/m after rising 0.7% in November, but it is now up 4.6% y/y after 3.1%, the highest growth rate in almost two years. Expectations for a February rate cut have grown but the retail data are signalling a recovery in spending supported by tax cuts and lower inflation.
- Q4 real retail sales rose at their fastest quarterly rate since Q1 2022 boosted by discounting. Consumers continue to be prepared to spend but only at the right price with retail prices rising 0.4% q/q down from Q3’s 0.6%. Retail volumes per person rose 0.5% q/q, the first rise in two and a half years.
- Q4 sales values rose 1.4% q/q to be up 3.7% y/y after 2.6% in Q3.
Australia retail sales y/y%
Source: MNI - Market News/Refinitiv
- The drop in December sales was driven by sharp falls in clothing (-1.8% m/m), other retailing (-1.4% m/m ) and restaurants (-0.5% m/m). Household goods saw their fourth consecutive strong month rising 1.6% and spending is now 7.1% higher than a year ago. Food retailing rose 0.1% m/m, which was impacted by supply disruptions, and department stores 0.4%.
- Online sales rose 4.2% m/m to be up 12.7% y/y.
- The ABS noted that “Cyber Monday fell in early December” which lifted spending in the month, especially for household items.
- The monthly series will be replaced by household consumption this year. The December update is out on Tuesday and forecast to rise 0.4% m/m and 3.4% y/y.
INDONESIA: Electricity Discount Pushes Headline Below Floor Of Band
Indonesian headline and core inflation continued to diverge in January with the former falling below the bottom of Bank Indonesia’s 1.5-3.5% corridor, while core rose 0.1pp to 2.4%, 0.7pp higher than a year ago. BI cut rates 25bp in January with the next decision on February 19. IDR stability is likely to remain its focus and it will probably also look through the fall in headline and focus on core inflation as the former was impacted by government policy.
Indonesia CPI y/y%
Source: MNI - Market News/Refinitiv
- The headline CPI fell 0.8% m/m non-seasonally adjusted bringing the annual rate down to 0.8% y/y from 1.6% in December. The sharp drop was due to a 8.75% y/y decline in utilities inflation, while transportation rose 0.8% y/y from -0.3% and food, drinks & tobacco increased 3.7% y/y up from 1.9%.
- Utilities fell 9.1% m/m in January due to a 50% discount on electricity rates for some customers.
- Personal care, education and household equipment drove the slight pick-up in underlying inflation.
- BI intervened to defend the rupiah today as a surge in the US dollar (BBDXY +1.2%) weighed on currencies regionally. It said that it was intervening to improve confidence and FX supply/demand. USDIDR is currently up 1% to 16460 today after a high of 16470.50 earlier.
ASIA: Indonesia & Philippines Bright Spots For ASEAN Manufacturing
The S&P Global ASEAN manufacturing PMI fell to 50.4 in January from 50.7 remaining just in growth territory but slowest in almost a year. Indonesia was the only country to post a material increase in the PMI and Indonesia and the Philippines were the only ones to report growth in industrial activity. Output and orders increases slowed but so did price/cost pressures, while the labour market “stabilised”. Despite this capacity pressures are showing with backlogs up for the eleventh straight month. With the US imposing tariffs, the outlook for the region remains highly uncertain, although January business confidence was unchanged.
- Indonesia’s manufacturing PMI rose to 51.9, highest since May, from 51.2 to be 3 points above the August low, driven by an increase in output, orders and employment growth, which boosted stockbuilding. There was a second straight rise in “new export business”.
- Despite a pickup in costs driven by raw materials, selling price inflation rose by less as firms narrowed margins in order to increase sales.
- In contrast Thailand’s manufacturing sector contracted slightly in January with the PMI falling to 49.6 from 51.4, the lowest since April 2024. Output and orders were down on the month and thus inventories too, while staffing was stable but confidence re the outlook improved and is above average. There were capacity pressures though with backlogs rising.
- Cost inflation rose for the third consecutive month to be its highest in almost a year but selling prices remained subdued.
- The Philippines was the other country to post a PMI above 50 and remains the strongest in ASEAN but it fell 2 points in January to 52.3 as output and orders growth slowed and employment was steady. Confidence remained positive but below average.
ASEAN S&P Global manufacturing PMIs seasonally adjusted
Source: MNI - Market News/Bloomberg
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